Wikinvest Wire

PBS FRONTLINE: The Warning

Friday, October 16, 2009

The new FRONTLINE documentary The Warning, scheduled to debut next Tuesday, is not likely to provide any assistance in the "reputation rebuilding" effort by former Fed Chairman Alan Greenspan whose comments yesterday regarding "too big to fail" might be seen in a whole new light given new revelations from the late-1990s about regulation of derivatives.
IMAGE Pictured above with former Treasury Secretary and Goldman Sachs alum Robert Rubin, this duo constituted two-thirds of the "Committee to Save the World" (along with top Obama administration economic adviser Larry Summers), a call that, in retrospect, may have been a bit premature.

From the PBS press release, meet Brooksley Born:

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission (CFTC) -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
This should be good, particularly in light of the fact that there has been virtually no progress on any financial market reforms, despite continuing calls from the likes of Paul Volcker.

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7 comments:

Anonymous said...

Can't wait to see this one. By the time he croaks, Greenie's reputation will be completely trashed........

Anonymous said...

21 October 2009 Thanks to PBS's "Frontline" tonight, several baffling (and unsettling) concerns I had about the American/global economy are, at last, better dealt with.

Anonymous said...

Greenspans reputation is already trash since he has done nothing to
help in this Great American Trajedy!
I cal for a Federal investigation of
Greenspan, Volker, Bush, Soros, Summers,and anyone who had meetings with these guys? Born is a hero, we need more like her to turn this around.
God Bless Born!

Toby said...

This story is just one vignette in the discrediting of the unfettered market theory. If these clowns were traffic engineers we would have no stop lights, speed limits or road rules.

Greenspan was right in stating that markets would adjust. He just failed to recognize that the system could destroy the host. The Reagan revolution died in the derivative slime brought on by this failed economic philosophy. Capitalism only works efficiently in a fair system with a level playing field.

Anonymous said...

Hey Americans your country had a good run, what with DECADES of you people getting away with murder & meddling & torturing & invading & undermining other democratically elected governments.

Now it's time for you to DIE because your evil & stupidity has finally been turned against you ...by yourselves. Ah, the poetic justice of it all is sooooo joyfully overwhelming.

Now the world can only hope as it waits with bated breath that your demise results in a PAINFUL, COMPLETE & DEFINITIVE COLLAPSE ..and know that once you're down for the count the world will EAGERLY STOMP YOU MF'S into the ground!

Happy times are here again!

Anonymous said...

In my mind it is not so much the lack of regulation as it was the constant bailout of anyone who failed. From Long-term capital management, the savings and loan crisis, the Mexican curreny crisis, after the internet bubble, every time the bailout would ensue and moral hazard was the result. You have to let people fail to reinstate the fear that makes for prudent actions.

Anonymous said...

It's astounding how people can read this aricle and still come up with totally diverging views on the cause and cure for our recent economic collapse. It's clearly a tribute to the stupidity of many of our readers.

THis report surely deflates Obama's accusation that Bush was responsible for the mess he was left with. Some of the very people that fought against reform in the 90's, which could have averted this collapse, are still forming Obama's economic policies.

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